When Debt Becomes a Problem

What to Do When Debt Becomes a Problem

We’ve all been there at one point or another. The mailman comes, and you dread opening the letter. You know exactly what’s inside, but instead of opening it you let it sit on the counter. Leaving the letter sealed feels almost like a solution. Once you receive your paycheck, you’ll happily pay what you owe. Until that day comes, you just try and forget about the problem. This isn’t something we like to talk about, but it’s a common problem. According to Global News, 40% of Canadian don’t have enough savings to cover an unexpected $500 bill.

We’ve all thought about it at one time or another. “What if I just don’t pay?” When you’re having, trouble making ends meet, the idea that you could just walk away from it all is comforting. Unfortunately, ignoring collection notices isn’t going to make the problem go away. But that doesn’t mean that you don’t have any options. These situations are complicated, and most individuals rely on Licensed Insolvency Trustees services to help them understand what their legal options are. According to one insolvency professional, discovering your options requires a detailed analysis that “uncovers every facet of your finances in order to find the best possible solution.” It might seem intimidating, but when you reach out to your creditors or to a professional, you’ll be able to effectively exercise your rights and take control of your finances. From here, you just need to follow a few simple steps.

Step 1: Assess the Situation


When a bill goes unpaid, many consumers are fearful. Are you going to lose your home? Will your car be repossessed? The good news is that those situations can be avoided. The law is designed to protect creditors, and the last thing that anyone wants is to put you under duress. However, you are going to have to negotiate to make a fair deal. In order to understand your limitations, you need to have a clear picture of what payment terms are viable for you. How much money do you make? How much do you owe? What are your monthly expenses? Is there anything that you can cut back on to save money? Write all of this information down. Once you determine how much money you can put towards your debt, you’ll be in a position to negotiate.

Step 2: Explore Your Options


Now it’s time to get in touch with creditors. Ask them about a Consumer Proposal payment plan. Explain your scenario, and suggest terms that will allow you to pay off your debt in a reasonable time frame. You may be surprised to learn that creditors are often quite receptive. Another option you can explore is consolidating your debts. If you have high interest payments such as a car loan or a credit card, occasionally banks can offer you a line of credit that will reduce your interest rate, allowing you to pay off the debt faster.

Step 3: Exercise Your Rights


If you address the issue early, creditors are often willing to work with you. But if your credit is less than stellar, you may find that creditors are not willing to accept a payment plan that works for you. At this point, you may want to consider a consumer proposal. A consumer proposal is a government regulated program designed for creditors who cannot work out a fair payment plan. Your legal representative will help you fill out paperwork so they can understand your financial position. If you are able to pay off all of your debt in four years, creditors will be legally forced to accept this deal. A consumer proposal acts like a consolidation loan; however, interests are capped and creditors are not allowed to contact you.

Step 4: Take Legal Action


Sometimes, debt gets out of hand. If paying your debts in full means that you can’t afford to support your children, feed yourself, or pay your rent, there are options. Laws were put in place to protect your well being, and there are two options. Sometimes, a consumer proposal will reduce your debt. Your Bankruptcy Trustee may find that you can only safely pay back 80% of your debt, so the payments can be reduced. If this fails, your last option is bankruptcy. Bankruptcy isn’t as scary as it sounds. The courts will assess your situation, and determine how much of your debt you should pay. Some people never pay a dollar, while others pay back a fair bit. This is on a case per case basis, and your own situation should be discussed with a professional.

Being in debt can be frightening. The good news is that you’re protected. You have lots of options available. The important thing is that you take responsibility for the situation. If you understand your own financial position and are willing to talk to your creditors, debt problems can usually be solved before they become unmanageable.

 

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